WeWork shares sink on reports of imminent plans for bankruptcy filing
reuters.com
reuters.com
It can still become profitable by removing the bad leases/renegotiating, I believe after the bankruptcy filling it will be an okayish company, but I doubt that it will still be a public company.
Doubt Softbank will ever recover what they invested in there though
That’s virtually guaranteed. They’ve put over $17 billion into WeWork, and the entire company (which they only own a portion of) is currently valued at $121 million.
I’m not sure how much it’s value would have to rise for them to break even, but … it would have to be a lot. 300x? Something like that.
They're in the hole $20B (plus lease obligations), and best case scenario is that they make a couple hundred million per year.
That wouldn't even pay for interest on the debt in the ZIRP world.
Softbank has already lost >99% of their investment - and VCs are infamous for being willing to sacrifice a sustainable business model for a shot at nearly impossible odds. What incentive does Softbank have to actually turning WeWork into a far less profitable going concern, vs. taking yet another wild swing at a thing?
The problem with WeWork is that Adam Neumann closed really bad leases (which are typically like decade long) which makes certain locations not profitable at all, no matter how WeWork provides a good service.
Once you remove the rotten stuff, they've got actually pretty good business, 75%+ occupancy rate and people who use WeWork actually like it.
It's also a memorable brand and that business model they have is actually good. But you need to "reshape" completely the company, and only through bankruptcy laws you could achieve it.
Are their most used buildings "bad leases" and their good leases are sitting empty? i.e. are the most sought after / used locations are also the most costly to WeWork.
In the same sense as Juicero.
I wish more of the entrepreneurs here valued building something to last not to sell - but it's sort of baked into the silicon valley DNA it seems. Move fast and get acquired/IPO before the loans run out.
We've gone from an industry of delivering real, tangible advancements (and the profits it entails) to an industry that largely delivers hot air, and whose primary money-making mechanisms is the pump-and-dump, and absconding with the winnings before the smoke clears.
Uber, WeWork, the "metaverse", pretty much the whole of crypto... the list goes on.
It's endlessly frustrating, especially because it demonstrates such a cynical view of technology. There's value to be produced! Real products that improve your lives, and make money doing it! We haven't even begun to run up against the limits of what technology can do for people!
It's doubly frustrating when certain high-profile people in our industry blame society's "techno-pessimism" for their own failures. They're the ones who funded a decade-long orgy of wasted money shoveled endlessly at an infinite sequence of companies that produced nothing of value. They're the ones who funded pump and dump after pump and dump - and now they're crying foul and claiming that the rest of us are the cynical ones.
I think it's very likely a takeover. Right now it costs nothing(~$100M) for SoftBank, but they'd rather let it go through bankruptcy as it will help the company to get rid of the bad part of WeWork.
I'm not an investor in WeWork ATM, but I wouldn't mind to own some stocks once this is sorted out.
Seems like it would be a bad move unless they can shed all of WeWork's unprofitable leases. What assets does WeWork have that are worth buying? The name? The app?
but if you're effectively subleasing, and WeWork might not be able to pay their rent, suddenly that seems like a huge problem. is there going to be a giant padlock on the door when I come in to meet with clients tomorrow? Am I going to have to call the sheriff to sort out which property is mine and not covered by a lien against the tenant?
who even knows if these are realistic possibilities given WeWork's specific lease and contract with the subtenant, but if you suddenly have to worry about it, the product is actually worse.
Your point is very relevant to future customers though. If you are in the market for short term office space why would you chose the one that might shutdown in 3 months.
Given the state of commercial real estate, there's a play in inverting the model: have the landlord pay you to run a coworking space in their building. You charge a base fee and a commission; landlord keeps the rest. If the landlord gets a tenant they can terminate the arrangement.
You might want to buy wework out of bankruptcy for brand name and subscriptions or not.
This aligns the incentives better. Wework's model is like a bank that lends long but borrows short (you can walk up and pull your money out at any time), but without the protections banks are given through regulation and insurance.
This seems pretty sane to me. Or make the business franchise-based; the business provides branding, marketing, and training, franchisee/landlord hires staff, and handles supplies and maintenance.
End of the day the business itself filled a niche, but the TAM is smaller than a VC funded startup needs.. the pricing needs to be higher to survive, and there is no moat. Not a lot of magic to renting out real estate.
Really any half competent large landlord should be able to run their own brand of these, or offer it as one of the pricing levels.
It's also not even clear you need a global brand of this. There's no name coworking spaces all over Brooklyn now. If I want to use one when I'm elsewhere, then I'll use whatever they have... There's not a big platform effect here.
For me, the cool thing was knowing that in a multitude of different cities, I could just walk into a WeWork, using the same app, same system I'm already familiar with and trusted at, and just get on with whatever I'm doing.
Kind of like being able to trust Uber in a new, unknown place. Or walking into a McDonald's anywhere in the world and knowing exactly what I'm getting.
It's a shame it didn't work out.
So maybe WeWork 2.0 as a platform that allows CRE landlords to list spare space in any city globally makes some sense. WeWork puts up little to zero capital and just takes a cut.
WeWork 1.0 original sin was they were basically like those Airbnb sublet side hustlers. They signed multi-year leases for millions of square foot of space, and then tried to fill it with people paying for single seat per month at a time.
Essentially duration transformation for leases.
This works OK enough (well barely) when rates are low and return expectations match, but very bad when rates are high and you can get low risk high returns elsewhere.
I guess if you’re in a line of work where you travel often, stay long, and the destinations are not where your employer has offices, like maybe sales, devrel, that kind of thing? Although friends I have in sales and devrel don’t normally stay more than a week in a city
So what you're saying is... we need a massive VC-funded search function tool like Zillow for coworking spaces.
Kidding, kidding (I think?).
Going through the SPAC scam route finished them off with one more pump and dump on retail investors and unsurprisingly ending up bankrupt. Would never have happened in an environment with near zero interest rates and quantitative easing for decades and infinite money from the VCs.
First WeAreGoingBankrupt [0], then 28 days later, WeAreBroke [1] and now WeAreBankrupt.
Neumann may have lost his company, but he didn’t leave empty-handed. He walked away with what many called a “golden parachute,” a package that was valued at nearly $2 billion. “Adam Neumann will essentially get a king’s ransom for grossly mismanaging the company on his way out,” Amy Borrus, deputy director of the Council of Institutional Investors, told the Washington Post. The New York Times called Neumann’s deal one of the greatest examples of someone failing upwards.
[1] https://en.wikipedia.org/wiki/Flow_(real_estate_company)
We used to joke back in investment banking and private equity that Softbank investments are steaming piles of shit we should stay away from. Perhaps a16z should be added to the gang too.
An inverse Dropbox.
Now these companies have gone public, raised prices massively, we're right back to square one.
I did a lot of travel pre-COVID and I never felt the need for an office in whatever city I was visiting.
In contrast, a small coworking space could be an offshoot of another local business; some people will build or rent more space than their office needs, and sublet the extra for coworking. Often, cost / square foot is lower when you have larger spaces, so if there's demand for smaller spaces, you can probably offset the cost of the larger space (and maybe it gets you into a building with a better location or amenities). And it provides you flexibility --- if your company is growing, you accept fewer coworking customers, etc.
But a dedicated coworking business has to cover the whole rent, and won't gain anything from flexibility to expand its workforce.
The problem is with the size of that market, and how do you serve it. WeWork wasn't actually a valid experiment about any of those.
Already it’s brutal as 5/10 yr leaseholders are subletting at cutthroat rates. A WeWork bankruptcy would potentially put a lot more inventory back into the market.
On the flip side, great time to be a startup, you can get cheap short-term leases easily.
> I imagine WeWork's bankruptcy doesn't invalidate their [sub-]lease agreements (with actual occupants) and just transfers them to creditors
I’d be shocked if it works out that way. WeWork operates a highly curated experience, and at nowhere near full occupancy. Can the owner take over and provide the same service? (Don’t think most owners want to get in the business of operating a coworking space, even if it was profitable, which it currently looks like it is not). As a WeWork subscriber I would be surprised if you’d continue to pay for a space with someone else running it? Seems like “handing over some tenants” doesn’t really parse for this business.
Don’t know what % of WeWork is committed space as a sublease, but plenty of it is not (that is one of the USP of their offering).
It will always fail if there's a pandemic, WFH trend, hatred of commuting into CBDs, or everyday recession. Put all four together and it's dead man walking.
Just a pity that Adam Neumann made money from an obviously bad idea.
Fundamentally it seems like a pretty boring business of market forecasting and risk management. Not something that's going to yield 10X returns for a VC.
[1] https://www.cbsnews.com/news/ftx-bankruptcy-tweet-sam-bankma...
[2] https://www.forbes.com/sites/forbestechcouncil/2019/06/14/ho...
I think its a perfectly fine business model if you can get enough subscribers.
They could definitely raise their prices as the IMO the local competitors cost more and are not as well managed. (At least in Seattle)
Why does everyone keep repeating that as if it was the worst idea ever?
I mean, there are lots of businesses doing exactly that. Banks, insurance companies, other real estate etc. It's just a matter of pricing and not taking more risk than you can afford.
If the banks are small, they might be allowed to go bankrupt. But sometimes they are 'merged' into a bigger bank, under the auspices and supervision of the govt (fin sec regulator), often at a token 1 EUR/USD/GBP price (for the latest, see CSFB->UBS). In some cases, the shareholders and bondholders get to keep their money (!). This is not a real market.
At the moment, the Fed & Treasury are punishing the banks by offering high rates on short notes and 2-year bonds. You may have noticed your bank offers <1% on instant access deposits but the US Govt offers 4-5% (easily available at treasurydirect.gov). Money market accounts offer the same, minus fees. Banks cannot survive, so the Fed offers them free money, and interest on reserve accounts, so they are bailed-out by proxy, without anyone having to utter the word bailout.
Insurance companies are also bailed out, but only if they are in the financial re-insurance industry and TBTF (see AIG). Other insurers just go bankrupt, unless they are small-medium size, and can reinsure at somewhere like Lloyds of London, with unlimited liability and the skin-in-the-game of personal liability (not ltd protection).
Nassim Taleb can explain the fat-tail risk, and why failures will happen eventually.
Real estate, especially CRE, will go bankrupt very soon, if interest rates stay at this level any longer. Some of those failures will be cascaded from WeWork's bankruptcy. Watch this space...
None of the examples you give are viable business models without implicit or explicit govt backing. They are picking up pennies in front of the Juggernaut of fat-tail risk.
Banking is one of the oldest business models, and there are many banks that are hundreds of years old and has weathered numerous crises. That alone should settle the argument if banking is a valid business idea or a dumb one that is doomed to fail without government backing.
The banking business is risk management. Execution is everything. Compare Silicon Valley Bank with BoA. They aren't remotely similar in the risk exposure. Or compare Scandinavian banks with Italian. There's just no comparison. Regulation has kept the former in check, and is so well capitalized it will survive anything, and this is part of how to properly manage risk when, as you rightly say, the banks are too big to fail.
Taleb is interesting and thought provoking to some, but not remotely scientific. It is collection of anecdotes, not principles to base your entire society on. Plenty of banks work well and has done so for centennia.
Spanish & Italian banks are infamous. The oldest bank, BMPS went down.
https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Sien...
Swiss banks - CS bankrupt, merged with UBS. German banks - DB and Commerzbank are both basket cases, with stock prices bouncing along the bottom, and only avoid bankruptcy because of the implicit ECB backing ( Whatever it takes ). Dodgy state-run French banks propped up by the bailout of Greece - no money went to Greece, it just went into an ECB account, then direct to creditors, mostly French banks!
Many EU sovereigns and banks and companies have been bailed out by ECB buying risky assets, even commercial bonds, etc. (Fed is also authorized to buy junk bonds, hence tight spreads v. triple-A paper).
UK banks collapsed in 2007-9, with run on Northern Rock. The banking system was effectively nationalized for a decade, and many banks merged into the TBTF incumbents. Recently, the BOE had to bail out pension funds because of MTM losses on bonds.
https://www.theguardian.com/business/2022/sep/28/bank-of-eng...
>WeWork shares sink
Better let that sink in.
I've used a lot of them and Wework was the most "clinical" and corporate of them. The small local ones tend to have awesome community, fun after work get together and special events, a little board game area, etc. All in all they actually feel like communities, not just desks.
Health and fitness places likewise will sublet portions of a larger facility out to other businesses. e.g. the Yoga classes at your local big-gym etc.
Most big Asian grocery stores in the U.S. also have lots of small sublet but compatible businesses, so you can get a haircut, buy jewelry and makeup, get lunch, and leave with a coffee and a baked good...all from separate establishments.
But no, that sounds interesting! I guess it's not that different from today's coworking spaces in that "someone with capital starts a shared office" way.
I do like the eclectic mix of people at the local ones, though. They weren't all devs or worked in tech. Made life more interesting that way.
I travel for a couple months at a time to different places and while WeWork certainly has a feel that many don't like much, its always a convenient and reliable option when it comes to getting access to someplace with good wifi, amenities etc.
I travel all around Latin America and Spain for the most part, with some trips to other places for relatively long stretches of time and haveing a wework membership in certain cities makes finding a good place to work from much more easy and convenient.
When I'm in a place without a wework I generally do go to a local place, but most large cities have wework available and its just less stress to have to always sign up with a new place, or have to negotiate rates if I'm not staying for a full month or so.
But it's an interesting model, at least. Many local credit unions are also part of a shared ATM network, for example, and often science museums will have reciprocal memberships across the world (via the ATC Travel Passport program).
But yeah, I hear you. It's the same reason Starbucks is popular everywhere... consistent reliability + availability is a big perk that locals have a hard time matching.
If you haven't seen it before, it's a great way to find (and use) small local spaces. It's basically the Classpass of coworking.
The Hilton one doesn't actually show any day rates when you search, just regular room nights.
The Marriott one shows no day rate availability in any city I checked.
Were these experiments they ran in the past but gave up on, or am I doing something wrong?
They wouldn't even necessarily need to rent out the private rooms (which would have higher housekeeping costs, and later check-ins, if they were dual-purposed as work areas) but maybe just a lobby-like or breakfast space or two. That helps the community too, so everyone's not just tucked away in their own little rooms.
However, probably a lot of small indie hotel locations are franchisees with some access to capital but probably limited participation in techie/hipster/young nomad circles (which is mostly what I see in coworking spaces). Usually those small local hotels, in my experience at least, are family-run and maybe not equipped to deal with either the infrastructure side (they almost all have shitty wifi, as a rule) or the customer service side (a constant stream of of people going in and out, not just during check-in and checkout... but then again, that is their bread and butter, so maybe?).
In my recent travels I did come across a cool outdoorsy chain though with more modern attitudes (repurposing old motels into fun community stays with regular rooms, hostel beds, camper van spaces, shared cafes and kitchens, etc.): https://www.logecamps.com/home Something like that could probably easily pivot, but then again, that's often a different demographic than the typical coworking space user. I dunno. These days they're all kinda blending together though :)
Still, all in all a cool idea. Wish I had the capital to start something like that!
This is the way!